Private sector seizing business opportunities in Iraq thanks to Kuwait's support for war opposed by fellow Arab states.

Middle East Online

By Fiona MacDonald - KUWAIT CITY

Kuwait is reaping what it has sowed

Kuwait's private sector is reaping the benefits of strong support for the war in Iraq and snapping up business opportunities that economists believe will become increasingly lucrative.

Some Kuwaiti companies had already gained from the war, landing contracts to provide food, water and other services to about 170,000 US and British troops stationed here in the run-up to the March 20 invasion.

The prospects of possible gains in the process of rebuilding Iraq have rallied the Kuwait Stock Exchange (KSE) for months, taking it to new records.

It closed Sunday at its highest level yet, 3791.2 points, and saw capitalisation top 45 billion dollars for the first time ever in May.

The emirate's support for the war - it served as the main launchpad - has given Kuwaiti companies an edge over their rivals in a country now providing a main gateway into Baghdad.

"Kuwait's position is different to others in the region, it opened its gates to the British and Americans," said Kuwaiti economist Ali al-Nimesh.

Though this came at a cost to its political standing in the region, where fellow Arab states were opposed to the war, Kuwait is now profiting.

"And it's the private sector getting this benefit, with a lot more potential to get more contracts," Nimesh said.

American and British companies are to be awarded the main contracts, but Kuwaiti firms will profit as sub-contractors, and in telecommunications, public warehousing, storage and catering services, Nimesh said.

Retailers also stand to gain, particularly those providing mobile phones, cars and clothes, while the emirate will continue to profit from being a main transit point to Iraq.

Kuwait's Public Warehouses Co., listed on the KSE, on Saturday landed a five-year contract to execute logistics and purchase products, locally and from abroad, to provide US forces in Kuwait, Iraq and Qatar with food and other goods.

The contract is estimated to be worth an annual minimum of 23 million dollars but economic sources said it is expected to increase to 300 million dollars per year.

The Sultan Centre, Kuwait's largest privately-owned supermarket, also listed on the KSE, has signed up and is expected to be in charge of the locally supplied products.

"Many Kuwaiti companies have an advantage because of their proximity to Iraq and the capability of the private sector," said Faisal Ali al-Mutawa, a leading member of the Kuwait Chamber of Commerce and Industry.

"Kuwaitis already have property ownership in Iraq, and up to four Kuwaiti companies now have contracts in Iraq," said the prominent businessman.

"Iraq is opening up a great opportunity for the private sector, which has been limited in Kuwait because of government control," he said.

However economist Jassim al-Saadun took a different view saying business in Iraq itself will really pick up in three years and that in the meantime, "Kuwait will lose on so much ground."

The emirate has at least 15 billion dollars in loans to Iraq and is owed about 25 billion dollars in compensation from Saddam Hussein's 1990 invasion of Kuwait, Saadun said.

The initial demand will be on the construction, transportation, telecommunications and hotel services, he said. "Even wholesale trade will gain because some of the Iraqis' needs will come via Kuwait. Yet it won't be that huge."

Total gains by the private sector will ultimately be offset by the public sector, which has already seen increased expenditures as a result of the war, he said.

In March, parliament approved a government request to allocate an additional 500 million dinars (1.7 billion dollars) in emergency funds to cover security and other war expenses.

Saadun said the "real business" would primarily go to American and British companies, and the leftovers to the others, in part because the pressing reconstruction projects in Iraq are beyond the expertise of any Kuwaiti company.

"Things haven't really started yet, but the telecom companies and construction companies are very active," Saadun said.

"After three years there will be a huge gain to the Kuwaiti economy because Iraq will be in a position to trade with Kuwait," provided the United States reconstructs and secures Iraq politically and generates investor confidence.

Once Iraq increases oil production, creates new jobs, goods and services, "the owed loans and compensation may be part of a new project," Saadun said. "A stable, growing Iraq will be much more beneficial to Kuwait."